FIN 301 PSU EXAM 1 QUESTIONS AND ANSWERS
GRADED A+.
Beta is used in the capital asset model primarily as a measure of Answer - Risk
According to the principles of finance, what should be management's goal
when making corporate decisions? Answer - Maximizing Shareholder Value
The basic principles of finance dictate that in the short-run, stock prices are
driven by Answer - Supply & Demand
All else equal, which of the following stocks should have the highest expected
return?
Stock A: Standard Deviation - 15%
Stock B: Standard Deviation - 30%
Stock C: Standard Deviation- 5% Answer - Stock B
According to the Principles of Finance, risk aversion means: Answer - Investors
takes small risks, but do not avoid risk at all cost
, True or False: In order to achieve the highest level of return for the amount of
risk we can take on, it is very important to not diversify our investments into
different asset classes, and to only invest in small-cap bio-tech stocks. Answer -
False
Which two financial metrics does Warren Buffet use to analyze companies?
Answer - Profit Margin & Return on Equity
The random walk hypothesis is inconsistent with the efficient market
hypothesis Answer - False
The 5th principle of finance states that management has fiduciary
responsibility to act in ___________ interests Answer - Shareholders'
Inflation decreases your return on investment by reducing the future value of
the money you receive on your investment Answer - True
What is the correlation between the risk of an investment and its expected
return? Answer - Positive
When Professor X started investing with a mutual fund, he had to pay a front-
end load of 5% of the money he was investing. What is this front-end load of
5% an example of? Answer - Transaction Costs
If you invest in a stock with a beta of 0.7, you would expect your return to be
Answer - Lower than that of the overall market
According to frank Russell's model of investor emotion through market cycles,
investor emotion in 2007 before the financial crisis would be best described as:
Answer - Euphoria
GRADED A+.
Beta is used in the capital asset model primarily as a measure of Answer - Risk
According to the principles of finance, what should be management's goal
when making corporate decisions? Answer - Maximizing Shareholder Value
The basic principles of finance dictate that in the short-run, stock prices are
driven by Answer - Supply & Demand
All else equal, which of the following stocks should have the highest expected
return?
Stock A: Standard Deviation - 15%
Stock B: Standard Deviation - 30%
Stock C: Standard Deviation- 5% Answer - Stock B
According to the Principles of Finance, risk aversion means: Answer - Investors
takes small risks, but do not avoid risk at all cost
, True or False: In order to achieve the highest level of return for the amount of
risk we can take on, it is very important to not diversify our investments into
different asset classes, and to only invest in small-cap bio-tech stocks. Answer -
False
Which two financial metrics does Warren Buffet use to analyze companies?
Answer - Profit Margin & Return on Equity
The random walk hypothesis is inconsistent with the efficient market
hypothesis Answer - False
The 5th principle of finance states that management has fiduciary
responsibility to act in ___________ interests Answer - Shareholders'
Inflation decreases your return on investment by reducing the future value of
the money you receive on your investment Answer - True
What is the correlation between the risk of an investment and its expected
return? Answer - Positive
When Professor X started investing with a mutual fund, he had to pay a front-
end load of 5% of the money he was investing. What is this front-end load of
5% an example of? Answer - Transaction Costs
If you invest in a stock with a beta of 0.7, you would expect your return to be
Answer - Lower than that of the overall market
According to frank Russell's model of investor emotion through market cycles,
investor emotion in 2007 before the financial crisis would be best described as:
Answer - Euphoria
